There has been a lot of talking up about the property market since the start of the year but Minister for Finance Michael Noonan tried to bring some calm to the situation earlier this week when he said there was no second bubble emerging.
Perhaps he has a point. While urban areas such as Dublin, Cork and Galway – not to mention other sizeable towns around the country – are struggling for stock, it is that issue more than any other which is driving up prices.
People do want to buy. It is still an ambition of many to own their own home but most people want what is considered the ideal, i.e. a 3 or 4 bed in an attractive location with good local facilities such as schools etc.
That has meant that a miniature bubble has formed in key areas of cities. Whereas once there was a natural trading up movement to the market, a combination of negative equity and unwillingness to give up on tracker mortgages means that the choice available is now slim.
In the ever-popular Dublin 4, for example, there are just 134 properties for sale right now. When a maximum amount of €500,000 is set that search reduces to almost half that at 70. Considering virtually every property in this area is now selling for above its asking price, you could even cut another good few from that list.
Even leaving that aside, when you cut out the likes of apartments that list dwindles once more to just 36 properties. Again, when you set a search option of a minimum number of bedrooms to three, the selection available tumbles to just 11.
Now a lot of people wouldn’t have €500,000 to spend to begin with but it’s just a small example of how little actual choice there is for those looking to buy at present. There are a growing number interested in owning their own home though and these people are almost competing ferociously now to win bidding wars.
Unfortunately the power still lies with cash buyers. While banks will tell you they are lending more – with Irish Banking Federation figures showing that the number of mortgages approved in February was up 36% on the same month last year – the reality is slightly different.
Just because a mortgage is approved doesn’t mean it will be drawn down and even if someone finds a house within their price range there is no guarantee that the bank will agree to its purchase or that it won’t be taken out of their price range when bidding starts.
In the period from October to December last year, banks lent €896m in new mortgages but this was actually down 10% on the same period of 2012.
Some commentators have tried to accuse banks of trying to prop up house prices and there may be a bit of truth in this. Rising house prices reduces the capital banks will need to cover the cost of bad mortgages.
Of course, there are other issues – supply being paramount – but as desperate as some are to get their hands on a home, it’s better to be patient and prudent than jumping in at the deep end.